United Internet plans a major expansion of its fiber-optic network in Germany, chief executive Ralph Dommermuth told Handelsblatt in an exclusive interview, marking a direct challenge to the country's top provider Deutsche Telekom.
"In the broadband business, we will increasingly become a network operator," Mr. Dommermuth said. "We are concentrating on modern fiber-optic networks.“
Starting Saturday, United Internet's subsidiary 1&1 Versatel will offer small and mid-sized businesses fiber-optic connections for €200 the first year and another €100 in the second. There's also a €1,960 connection fee.
Starting speeds range from 500 megabits to a gigabit per second. Additional speed is also available at anytime, Mr. Dommermuth said.
Companies can participate in the offer if they are within in a 500-meter radius of a 1&1 Versatel distribution point.
Active in 250 cities, 1&1 Versatel claims to be the second-largest network operator in Germany after Deutsche Telekom. United Internet acquired Versatel in 2014 and renamed it 1&1 Versatel a week ago.
The bosses of established telecoms companies across Europe have often complained that companies offering cheap wifi telephony services are freeloaders, who have no networks of their own and only rent wireless capability. They complain that these discounters do not invest in communications infrastructure, but put downward price pressure on the companies that do.
Corporate clients are more reliable. They don’t tend to change providers frequently as they need continuity in their communications. Wolfgang Specht, analyst, Bankhaus Lampe
Mr. Dommermuth insists they are not freeloaders, pointing out that his company spends €1 billion ($1.1 billion) a year on wholesale products from network operators, so he can market them under his company’s own name.
He points out that the company is “increasingly becoming a network operator in the fixed-network business,” concentrating on modern fiber optic networks. And his new project, to be launched Saturday, aims to bring fiber optic cables right into company officers.
This one sentence contains enough dynamite to blow up the entire industry: The expansion of broadband is an ongoing bone of contention in Germany. It is about which technologies are suitable for the expansion and who should pay for it. Everyone has agreed in principle that fiber optic cables installed right into the house are the best long-term solution to handle increasing levels of data consumption and the speeds required. But it is also the most expensive option, and that is why some companies want to use other technologies.
And now Mr. Dommermuth proposes to solve this problem in his own pragmatic way: For a monthly fee of €200 in the first year and €300 in the second year, companies get their own fiber optic connection. There is an additional one-off charge of €1,960 for the house connection, fiber optic router and having it activated by a technician. It is the same principle which has been in practice with private customers for decades: a two-year contract plus connection costs. “Our new offer is aimed at small and medium-sized companies, providing them with connections with a gigabyte or 500 MB per second (Mbit/s),” he said. And more speed is possible at any time. With fiber optics, he can offer broadband with up to 100 GB.
It can be ordered by anyone who has an office within 500 m of a 1&1 Versatel distribution hub. The company says it is the biggest network operator in Germany after Deutsche Telekom and it is active in 250 cities.
“A large-scale expansion of fiber optic is a full out attack on Deutsche Telekom,” said Wolfgang Specht, an analyst at the private bank Bankhaus Lampe in Bielefeld. “The corporate client segment accounts for an important third of revenues in Germany.”
Mr. Specht points out the focus of 1&1 Versatel on fiber optics expansion makes sense. “Corporate clients are more reliable. They don’t tend to change providers frequently as they need continuity in their communications,” he said.
Mr. Specht added that it would be interesting to observe what effects the offer would have on investment costs, but United Internet had enough capital available to be able to afford it. And, as Mr. Dommermuth explained: “We are also happy to rent out our cables to competitors.”
Ina Karabasz is an editor at Handelsblatt's companies and markets team, covering telecommunications, IT and security issues. [email protected]